Transfer Pricing in South Korea

The legal framework

Korea keeps its transfer pricing rules in a single dedicated statute. The Adjustment of International Taxes Act (국제조세조정에 관한 법률, AITA) was rewritten wholesale by Act No. 17651 of 22 December 2020, effective 1 January 2021, and that rewrite renumbered the entire Act, so pre-2021 commentary must be re-mapped before it is relied on. The version current in August 2026 is Act No. 21215, promulgated 23 December 2025, implemented by the Enforcement Decree (Presidential Decree No. 36128, in force 27 February 2026) and a Ministerial Enforcement Rule.

Article 2(1)5 defines the arm's length price by reference to the most reasonable method and to ordinary dealings with parties outside the group; Article 7 lets the National Tax Service determine or rectify the tax base where a transfer price sits above or below it. The regime reaches only cross-border dealings: a foreign related party under Article 2(1)4 is a non-resident or foreign corporation, excluding its Korean branch, in a special relationship with a resident, a domestic corporation or a Korean permanent establishment. The special relationship test in Article 2(1)3 pairs a bright line — direct or indirect ownership of at least 50% of voting stock, by one party of the other or by a common third party of both — with a substance limb catching parties whose equity, trading or lending links let one determine the other's business policy.

The OECD Guidelines are not binding of their own force, but the legislation has been amended to follow them and operates as an interpretive source rather than a parallel code.

Methods, comparables and benchmarking

Article 8(1) lists six methods: comparable uncontrolled price, resale price, cost plus, transactional net margin, profit split, and other reasonable methods prescribed by Presidential Decree. There is no hierarchy — the taxpayer selects the most appropriate and reliable method on the facts — but the residual sixth category opens only where none of the first five can produce an arm's length price.

On comparables the statute is neutral: Enforcement Decree Article 14(2) asks for the best comparables, Korean or foreign, and secret comparables are unavailable for assessment. Practice is less neutral. NTS teams work primarily from Korean data in KIS-Value alongside Osiris and Amadeus, and a purely pan-Asian set should expect a challenge. Article 16(7) is the exception that matters: where a taxpayer has not filed its Master File, Local File or arm's length data, the authority may presume the arm's length price from available comparable business information — which Korean counsel read as admitting non-public data against the non-compliant.

Article 15(5) permits a range built from two or more uncontrolled transactions, and Article 15(6) requires any adjustment of an outlying price to land on the average, median, mode or another rationally computed point inside it. The interquartile range appears nowhere in the legislation, yet it is the working convention for taxpayers, the NTS and the Tax Tribunal alike, with the median as the default adjustment point, and the Tribunal has pushed back where a range rested on too few companies. Article 15(4) requires comparability adjustments wherever the comparability factors differ materially — the point on which Korean transfer pricing litigation most often turns.

Documentation: what the National Tax Service expects

The three-tier package — Master File, Local File and Country-by-Country Report, filed together as the Combined Report of International Transaction Information (국제거래정보통합보고서) — is due under Article 16(1) within 12 months of the last day of the month in which the business year ends: 31 December of the following year for a calendar-year taxpayer.

Master File and Local File obligations turn on two thresholds in Enforcement Decree Article 34(1), operating cumulatively (요건을 모두 갖춘, all conditions met): revenue above KRW 100 billion and aggregate related-party transactions in goods, services, intangibles and lending above KRW 50 billion. Falling below either excuses both files. CbCR follows Article 35: a Korean ultimate parent files where prior-year consolidated revenue exceeded KRW 1 trillion, while a Korean subsidiary of a foreign group looks to the parent jurisdiction's threshold, defaulting to EUR 750 million where that jurisdiction has no regime.

Language is a deadline, not a formality: the Local File must be in Korean, the Master File may be filed in English provided a Korean version follows within one month, and the CbCR goes in both. Article 16(2) separately requires three annual schedules — the Statement of International Transactions, the Summary Income Statement of the foreign related party and the Report on the Arm's Length Pricing Method — due six months after the month-end of the year end, decoupled since 2021 from the corporate return, each carrying its own de minimis thresholds under Enforcement Decree Article 36 rather than a single shared floor.

Audits, penalties and the enforcement climate

Article 16(4) and (5) let the authority demand arm's length data and allow 60 days to produce it, extendable once by up to 60 more; nothing requires the file to exist when the return is filed. Article 16(6) then bites: material not produced by that deadline without good cause cannot be used for taxation purposes if it surfaces later in an appeal or a mutual agreement procedure. A benchmarking study built after the request lands can arrive too late to be usable.

Non-submission or false submission of each of the Master File, Local File and CbCR draws an administrative fine of KRW 30 million per report under Article 87(1) with Enforcement Decree Article 144, adjustable by up to half either way, within the statutory KRW 100 million ceiling — and Article 87(2) adds a further fine of up to KRW 200 million, graduated by length of delay, where the data is still not produced within a 30-day period demanded by the authority. On the tax itself, Framework Act on National Taxes Article 47-3 charges 10% of the under-reported amount, 40% where fraudulent acts are involved and 60% where that fraud arises from an offshore transaction. AITA Article 17 disapplies the under-reporting penalty where the taxpayer filed the Local File on time, or kept documentation of the method applied, and shows the method was chosen on a rational basis. The window is long: Framework Act Article 26-2 allows 7 years for offshore transactions, the working period for almost every transfer pricing adjustment.

The Supreme Court's decision of 16 October 2025 in case 2024두54065 is now the reference point on comparability. Remanding a KRW 9.05 billion assessment on the Korean distribution subsidiary of a Dutch electronics group, the Court held that TNMM, resting on operating margin, is less sensitive to product and transaction-stage differences than the traditional methods: an arm's length price is not invalid merely for want of a separate adjustment for them, provided the comparables carry on similar transactions and the computation rests on best-efforts data. The limit is unchanged — where differences are so marked that the risks assumed or assets used materially affect operating margin, the comparables are not highly comparable without a reasoned adjustment. Burden allocation follows 99두3423: the authority must first show its price was reasonably computed from best-efforts data; only then must the taxpayer show its own price sits inside a reliable range.

Dispute resolution and advance certainty

Advance pricing agreements are the centrepiece. Article 14 lets a resident apply to the Commissioner of the National Tax Service for approval of a pricing method, and the application must arrive by the day before the first day of the first covered year — a hard date that catches taxpayers who file once the year is under way. Unilateral, bilateral and multilateral APAs are available, including for hard-to-value intangibles; there is no government fee; and Article 15 binds both sides to the agreed method while requiring an annual compliance report. Article 14(3) permits rollback so long as the assessment period has not expired, practitioners reporting seven years bilateral and five unilateral for applications filed from 1 January 2021.

MAP runs in parallel under Article 42 — treaty interpretation questions to the Minister, taxation contrary to a treaty by the other state to the Commissioner. A request will not be forwarded where a final court judgment already exists or where it is filed more than three years after the applicant became aware of the taxation. Article 46 closes a MAP on agreement or five years from commencement, extendable but never beyond eight. Articles 49 and 50 matter commercially: collection can be deferred or suspended on a reciprocity basis, and the MAP period is excluded from domestic appeal time limits, so a MAP need not be run at the cost of the appeal.

Domestically, an assessment can be challenged before it issues through pre-assessment review within 30 days of the pre-notice, and afterwards by objection, examination by the NTS, adjudication by the Tax Tribunal, or the Board of Audit and Inspection — each within 90 days, with litigation within 90 days of the decision.

Pillar Two and what changes in 2026

The global minimum tax sits in Chapter 5 of the AITA. The Income Inclusion Rule applies to fiscal years beginning on or after 1 January 2024 and the Undertaxed Profits Rule from 1 January 2025. Bills passed on 2 December 2025 added a Domestic Minimum Top-up Tax for fiscal years beginning on or after 1 January 2026, drafted for QDMTT certification so that it takes priority over the IIR and UTPR. It charges 15% less the Korean effective rate on excess profit — GloBE income net of the substance-based income exclusion — with a de minimis exclusion at EUR 10 million average revenue and EUR 1 million average income. GloBE Information Returns are due under Article 83 within 15 months of the year end, 18 for the first year.

On the transfer pricing side, rectification claims made from 1 January 2026 must under Article 6(2) be supported by evidence that double taxation has actually arisen — an amended return in the counterparty jurisdiction, for example — not merely a transfer price adjustment report. A decree change effective February 2026 permits a partial audit where an APA application is cancelled, withdrawn or suspended, closing off the use of an APA filing to park an audit. The package released on 3 August 2026 would extend the Article 87 fine to data submitted with material omissions or errors, cut the CFC low-tax trigger from 17.5% to 15%, and implement the OECD Side-by-Side package; those remain proposals, due before the National Assembly by 3 September 2026 for a 1 January 2027 effective date.

How practitioners should respond

Three priorities follow. Treat the Local File as the primary defence document and have it complete, in Korean, before any request lands: Article 16(6) can shut out late evidence and Article 17 can remove the under-reporting penalty for those who prepared properly. Invest in the comparables set, because after 2024두54065 the fight is rarely about the choice of TNMM and almost always about whether the comparables are close enough and whether difference adjustments were reasoned — document the search strategy, the rejection reasons and every adjustment. And use advance certainty deliberately: the APA deadline falls before the covered year begins, rollback reaches back several years, and a bilateral agreement is the only mechanism that neutralises the Article 13 secondary adjustment on both sides of the transaction. Note where that clock starts: the 90-day repatriation window runs from the filing date or the temporary reserve disposition notice, not from the notice of transferred income that follows them.